Public sector pension gap grows

The public sector pension is still streets ahead of anything in the private sector, writes Paul Mills.

Two newspaper headlines caught my eye in the last week that seemed to emphasise the growing gaps between those employed in the private sector and those in the protected public sector.

The first was headed ‘Councils renting out properties for €10 a year ... despite being owed €300m in loans’.

The second story was headed ‘Civil servants will pay nothing towards pensions if unions get their way on levy’.

This story related to a demand by the unions that the pension levy imposed on public servants at the start of the recession be abolished.

This levy, amounting to 4.5% of pay, was introduced under the Lansdowne Road Agreement.

It was also noted that maintaining the levy would generate cashflow of about €132bn between 2009 and 2058. It would appear that public servants who joined after April 6, 1995 were given a pay rise to cover the then cost of the levy. In effect, it negated the impact of the pension contribution.

Business group Ibec in a recent submission to the Public Service Pay Commission stated that “while many public servants would make significant contributions if the levy was included, they were modest in comparison with the benefits”.

The public sector pension is still streets ahead of anything in the private sector. It is a guaranteed percentage of the final year or perhaps an average of the final three years’ salary. And it is tied to pay increases to the comparable grade in the public sector. It’s a gift that gives again and again even long after one retires.

The biggest problem of all relates to the funding of the pension. The employee’s element, where it applies, goes straight back into the Government’s coffers. The pension payment is paid out of current cashflow. There are no accumulated funds. It’s a problem that is set to get worse, as people live longer and as the public sector continues to pay many of its employees very well. It will present an enormous drain on future funds, weighing on the private sector.